Purchase A Property – London’s Help to Buy & Shared Ownership Guide
There are two major types of shared equity programs to help purchase a property: Help to Buy Equity Loan and Shared Ownership.
Help to Buy is a governmental scheme created to enable working individuals and first-time buyers to purchase new property, funded by a mortgage and with help from Homes England.
With Help to Buy: Equity Loan the Government lends you up to 40% of the costs of your newly built home and your first mortgage must be at least 25%of the value of the property you wish to purchase. The mortgage together with your cash contribution (which is minimum 5%) must be a minimum of 60% of the purchase price. The maximum full purchase price is £600,000.
You will be required to pay an interest fee of 1.75% of the amount of your Help to Buy shared equity loan at the time of the purchase, rising each year after the increase (if any) in the Retail Price Index (RPI) plus 1%.
There is also an additional monthly management fee of £1 payed by direct debit from the start of Homes England loan until it’s repaid.
The management fee and interest fees are not capital repayments to your Homes England equity loan and do not reduce the amount owing.
The loan itself must be repaid after 25 years or on the sale of the property if earlier. If you sell your home, you must repay the same percentage of the proceeds of the sale to Homes England as the initial equity loan (i.e. if you received an equity loan of 40% of the purchase price of your home, you must repay 40% of the proceeds of the future sale).
If during the time of your ownership the value of the property has fallen, then when you sell your home, you will have to repay a percentage of the market value equal to the percentage contribution of assistance received.
This means if the market value of your property falls below the level at which it was first purchased, you will repay less than the original amount Homes England contributed to the initial purchase.
You must always show that the proposed sale value is at the prevailing market value before going ahead. Homes England’s Mortgage Administrator must approve the sale before allowing the second charge to be released.
Following the initial purchase, you can also make voluntarily part repayments at any time at the prevailing market value. The minimum amount of such repayment is 10% of the market value at the time of repayment.
If you buy through Help to Buy, despite your mortgage being for less than the full purchase price of the property, you will be the legal owner with 100% title to your home.
Help to Buy is available in England from house builders registered to offer the scheme.
To be eligible to apply for either of the help to buy schemes you must not own any other property at the time you buy your new home. You also cannot use the scheme if you require a main mortgage more than 4.5 times your household income.
Help to buy is not available to assist buy-to-let investors or those who will own any property (other than their Help to Buy property after completing their purchase).
You cannot rent out your existing home and buy a second home through Help to Buy.
You cannot purchase a Help to Buy property if you own land with residential planning use.
If you can’t quite afford the mortgage on 100% of a home, Help to Buy:
Shared Ownership offers you the chance to buy a share of your home (between 25% and 75% of the home’s value) and pay rent on the remaining share. Later you would be able to buy bigger shares when you can afford to.
With Shared Ownership you can buy a newly built home or an existing one through resale programmes from housing associations. You’ll need to take out a mortgage to pay for your share of the home’s purchase price, or fund this through your savings.
You can buy a home through Shared Ownership in London if your household (single or combined earnings) earns £90,000 a year or less.
If you’re aged 55 or over, you can get help from another home ownership scheme – Older People’s Shared Ownership.
It works the same way as the general Shared Ownership scheme, but you can only buy up to 75% of your home. Once you own 75% you won’t have to pay rent on the remaining share.
Local Help to Buy Agents will assess your application to ensure that you are in apposition to afford a conventional mortgage for your proposed purchase. You need their approval before you proceed with the buying process.
You should also seek independent financial advice before proceeding with you Help to Buy Purchase.
Help to Buy homes are available from house builders registered to offer Help to Buy homes in England.
Our development Oakley Gardens offers the governments Help to Buy scheme, with apartments ready to move in to in early 2020.
Contact us for more information.